CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
CONTEMP. FINANCIAL MGT.-W/MINDTAP V3
14th Edition
ISBN: 9780357292839
Author: MOYER
Publisher: CENGAGE L
Question
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Chapter 17, Problem 6P

a.

Summary Introduction

To determine: The net pre-tax benefits if annual sales are $15 million.

a.

Expert Solution
Check Mark

Answer to Problem 6P

The net pre-tax benefits if annual sales are $15 million is $8,630.14.

Explanation of Solution

Determine the annual pre-tax earnings

AnnualPretaxEarnings=AverageDailyCollection×InterestRate×ReductioninCollectionTime=$15,000,000$365×7%×3=$8,630.14

Therefore, the amount of funds released is $8,630.14.

Determine the additional collection costs

AdditionalCollectionCosts=VariableCosts×TotalCollectionCenters×TotalWorkingDays=$10$0.50×6×250=$14,250

Therefore, the additional collection costs is $14,250.

Determine the net pre-tax benefits

NetPretaxBenefits=AnnualPretaxEarningsAdditionalCollectionCosts=$8,630.14$14,250=$5,619.86

Therefore, the net pre-tax benefits is -$5,619.86.

b.

Summary Introduction

To determine: The net pre-tax benefits if annual sales are $75 million.

b.

Expert Solution
Check Mark

Answer to Problem 6P

The net pre-tax benefits if annual sales are $75 million is $28,900.68.

Explanation of Solution

Determine the net pre-tax benefits

NetPretaxBenefits=AnnualPretaxEarningsAdditionalCollectionCosts=$75,000,000$365×7%×3$10$0.50×6×250=$43,150.68$14,250=$28,900.68

Therefore, the net pre-tax benefits is -$28,900.68.

c.

Summary Introduction

To determine: The net pre-tax benefits if annual sales are $15 million with 2 days of collection time.

c.

Expert Solution
Check Mark

Answer to Problem 6P

The net pre-tax benefits if annual sales are $15 million is $2,753.42.

Explanation of Solution

Determine the net pre-tax benefits

NetPretaxBenefits=AnnualPretaxEarningsAdditionalCollectionCosts=$15,000,000$365×7%×2$2.50$0.50×6×250=$5,753.42$3,000=$2,753.42

Therefore, the net pre-tax benefits is $2,753.42.

d.

Summary Introduction

To determine: The net pre-tax benefits if annual sales are $75 million with 2 days of collection time.

d.

Expert Solution
Check Mark

Answer to Problem 6P

The net pre-tax benefits if annual sales are $75 million is $25,767.12.

Explanation of Solution

Determine the net pre-tax benefits

NetPretaxBenefits=AnnualPretaxEarningsAdditionalCollectionCosts=$75,000,000$365×7%×2$2.50$0.50×6×250=$28,767.12$3,000=$25,767.12

Therefore, the net pre-tax benefits is $25,767.12.

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